Cartel Sustainability and Piracy in a Vertically Differentiated Oligopoly

23 Pages Posted: 30 Jul 2014  

Iacopo Grassi

Università Federico II

Date Written: July 29, 2014

Abstract

In recent years economic literature has deeply analyzed piracy and copyright violation. Nevertheless most of the contributions focus on the study of digital markets and monopoly. In this paper we concentrate on the effect the entry of a pirate may have in a vertically differentiated duopoly where originally two firms compete producing a high quality and a low quality good. We show that, under general conditions payoffs of firms might increase with piracy, since piracy may support collusion between the two firms producing the original goods and the collusive profits of the firms in presence of piracy may be bigger than the profits of Nash without piracy. This result may explain the reason why in some markets, like the fashion market, where the producers of the original brands basically control the supply chain of the sector, piracy and production of high quality fakes is huge.

Suggested Citation

Grassi, Iacopo, Cartel Sustainability and Piracy in a Vertically Differentiated Oligopoly (July 29, 2014). Review of Economic Research on Copyright Issues, 2014, 11(1), 9-31. Available at SSRN: https://ssrn.com/abstract=2473471

Iacopo Grassi (Contact Author)

Università Federico II ( email )

via Rodinò 22
Napoli, Napoli 80132
Italy

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